FILED
United States Court of Appeals
Tenth Circuit
October 24, 2007
PU BL ISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT O F APPEALS
TENTH CIRCUIT
ORIENT M IN ERAL COM PANY, a
N evada corporation; WIL-B AO
M IN ERAL CO., a limited liability
company formed under the laws of the
People’s Republic of China,
Plaintiffs-Appellants,
Cross-Appellees,
Nos. 05-4037, 05-4048, 05-4220
v.
BANK OF CHINA, a foreign banking
institution doing business in the
United States,
Defendant-Appellee,
Cross-Appellant.
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:98-CV-238-BSJ)
Robert W . Ludwig, Jr., Ludwig & Robinson, P.L.L.C., W ashington, D.C. (Allan
O. W alsh, M cKay, Burton & Thurman, Salt Lake City, Utah, with him on the
briefs) for Plaintiff-Appellants - Cross-Appellees Orient M ineral Company and
W il-Bao M ineral Company.
Christopher Brady, Butzel Long, a Professional Corporation, New York, New
York (Orlee Goldfeld, Butzel Long, a Professional Corporation, New York, New
York, and Arthur B. Berger, Ray Quinney & Nebeker, Salt Lake City, Utah, with
him on the briefs) for D efendant-Appellee - C ross-A ppellant Bank of China.
Before K ELL Y and EBEL, Circuit Judges, and M URGUIA, * District Judge.
EBEL, Circuit Judge.
These appeals require this court to determine, among other things, the
extent to which investors in Chinese gold mines can sue the Bank of China (the
“Bank”) in an American court. Because the Bank was owned and operated by the
People’s Republic of C hina, an A merican court’s subject matter jurisdiction must
be found under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C.
§§ 1602-11. The FSIA provides that a foreign sovereign is generally immune
from suit in the United States. See id. §1604. The FSIA’s commercial activity
exceptions, however, permit a foreign sovereign to be sued in a court within the
United States, to the same extent as any private individual, when the sovereign is
engaged in commercial activity that has a sufficient nexus to the United States.
See id. § 1605(a)(2). In this case, while the Bank is generally engaged in
commercial activity, we conclude, with one exception, that the Bank’s specific
comm ercial activity underlying Plaintiffs’ claims does not have a sufficient nexus
to the United States. As to the one exception, we agree with the district court that
it had subject matter jurisdiction to consider Plaintiffs’ claims to the extent they
*
Honorable Carlos M urguia, United States District Judge of the District of
Kansas, sitting by designation.
2
are based upon the Bank’s transfer of $400,000 to a bank in Utah. W e, therefore,
AFFIRM the district court’s jurisdictional rulings. W e further AFFIRM the
district court’s ruling for the Bank on the merits of the claims over which it had
jurisdiction. But we REVERSE the district court’s dismissal of the B ank’s
counterclaim and REM AND the counterclaim to the district court for further
proceedings.
I. BACKGROUND 1
Following a bench trial, the district court made these factual findings:
Plaintiff Orient M ineral Company (“Orient M ineral”) is a Nevada
corporation. Art W ilson was chairman of Orient M ineral’s board of directors.
W ilson met Yue Xiaoqun, also known as David Yue (“Yue”), a Chinese
citizen, in 1994 while Yue was in the United States working for the China Foreign
Development Company. Yue became a director and shareholder in Orient
M ineral. And he interested W ilson in investing in Chinese gold mines.
In 1995, W ilson, aided by Yue, formed Plaintiff Wil-Bao M ineral
Company, Ltd. (“W il-Bao”), a joint venture created under Chinese law by Orient
M ineral and a Chinese entity, Jiaocun Gold Company (“Jiaocun Gold’). Jiaocun
Gold was w holly owned by the municipality of Jiaocun, China. W il-Bao’s
purpose was to acquire gold mining properties in China’s Henan province and
1
W e GRANT Plaintiffs’ motion to file a supplemental appendix in
cross-appeals Nos. 05-4037, 05-4048.
3
then mine, mill and sell the gold extracted from these mines. W il-Bao was
headquartered in Lingbao, China. 2
W il-Bao’s seven-member board of directors included four individuals
associated with Orient M ineral: W ilson (chairman), Yue, F. Thomas Eck, III,
Orient M ineral’s president and general counsel, and John H. M ahan; and three
members associated with Jiaocun Gold. Yue became W il-Bao’s general manager
and John Zhang, who was Yue’s brother-in-law, became W il-Bao’s finance
manager.
W il-Bao was to have registered capital of $3 million. 3 Of that am ount,
Orient M ineral was to contribute $2.1 million— $1 million in cash and $1.1
m illion in mining equipment. Jiaocun Gold would contribute the right to use tw o
existing mine sites and other fixed assets, worth a total of $900,000. As it turned
out, Jiaocun Gold did not own the rights to any mines and ultimately contributed
nothing to the joint venture.
Orient M ineral convinced R. Ellsworth M cKee, a United States citizen from
Tennessee, to fund this joint venture. M cKee was chairman of the board for
M cKee Foods Corporation (“M cKee Foods”). He was initially leery of this
investment opportunity because he was unfamiliar w ith China and this
2
The record also contains references to this city as Ling Bao and LingBao.
3
Unless otherwise specified, any reference to sums of money will be in
United States dollars.
4
opportunity involved a fairly risky gold mining venture. 4 M cKee eventually
agreed to invest $3 million, but only under certain terms and conditions designed
to protect M cKee’s investment.
Those conditions included treating most of M cKee’s $3 million investment
as a loan to Orient M ineral for W il-Bao’s benefit. 5 M oreover, Orient M ineral
agreed w ith M cKee to place Preston Jones on Orient M ineral’s board of directors,
replacing M ahan. Jones was M cKee Foods’ “director of corporate tax” and he
also handled R. Ellsworth M cKee’s personal finances. Orient M ineral further
agreed to give Jones “total control of the funds for Orient M ineral
Company,” appoint Jones to the W il-Bao board of directors, and require Jones’
authorization for all W il-Bao expenditures over $25,000, “at least until such time
as all loan funds had been repaid to M r. M cKee.”
The next challenge was to get M cKee’s $3 million to China in a form that
W il-Bao could use. For this, the group turned to the Bank of China. The Bank is
organized and exists under the law s of the People’s Republic of China, has its
4
This venture was actually riskier than M cKee realized. At the time Orient
M ineral created W il-Bao and solicited M cKee’s financial investment, the Chinese
government had imposed a moratorium on moving and milling gold ore.
Therefore, while W il-Bao could mine “some gold,” it could not move, mill or sell
any gold until the Chinese government lifted the moratorium. Orient M ineral
failed to disclose the then-existing moratorium to its prospective investors,
including M cKee. The Chinese government eventually lifted the moratorium in
1997.
5
M cKee loaned Orient M ineral $2.9 million for W il-Bao’s benefit, and
agreed to invest an additional $100,000 himself.
5
principal office in Beijing, and operates a “sub-branch” in Lingbao, as well as a
branch bank in New York City. At the time, the Bank was wholly owned and
operated by the People’s Republic of China.
Yue, who was in China acting as W il-Bao’s general manager, had already
made several inquiries at the Bank’s Lingbao sub-branch, asking, for instance,
whether W il-Bao could bring equipment, purchased abroad, into China, and about
W il-Bao’s ability to convert its profits from the local Chinese currency “to
foreign exchange to be remitted abroad.” In M ay 1996, at W ilson’s request, Yue
arranged with the Bank’s Lingbao sub-branch for a “temporary special holding
account” to which Orient M ineral could wire the $3 million it had obtained from
M cKee. Also at W ilson’s request, Yue asked for and received a letter from the
Bank, dated M ay 14, 1996, which provided:
Dear M r. Yue Xiaoqun:
Our bank already received your application on M ay 14, 1996, and
we agree to establish in our bank a temporary U.S. Dollar account at the
request of your honorable company (Sino-U.S. Joint Venture Henan
W il-Bao M etal Smelting Company, Ltd.). W e now advise the relevant
particulars as follow s:
A ccount name: O RIENT M INERAL CO.
Account number: 14833
Bank opening the account: Lingbao City Subbranch, Henan
Provincial Branch
Bank of China
After the funds are transferred, our bank will be responsible for
safekeeping these funds. Further, M r. Y ue Xiaocun [sic] must bring to
our bank the business license of ORIENT M INERAL CO., the company
6
chop, 6 and a com pany authorization letter, and go through the
formalities, so that the funds can be used in the joint venture in accord
with arrangements made by the representative of the American party.
(Footnote added.) This letter was written in Chinese and addressed to Yue.
Yue sent to W ilson, in Nevada, the Bank’s letter, along with Yue’s rough
English explanation of the document. W ilson then had a friend who operated a
Chinese restaurant translate the letter for him.
In preparation for the transfer of funds to China and pursuant to its
agreement with M cKee, Orient M ineral’s Board of Directors, on M ay 16, 1996,
passed a resolution that, among other things, provided that “Preston Jones shall be
the sole and exclusive person to act on behalf of Orient M ineral Co. with respect
to the disposition of all funds deposited in the Bank of China, Lingbao Branch of
the HeNan Province.” The resolution further provided that “the Board of
Directors and Orient M ineral Co. shall hold the Bank of China harmless from all
claims or liabilities of any kind whatsoever, provided the directions of Preston
Jones are followed by said Bank of China.” This resolution had the appearance of
a formal corporate document, impressed with Orient M ineral’s corporate seal,
signed by Orient M ineral’s president, and attested to by its acting corporate
secretary. Further,
[a]ccompanying Orient M ineral’s Board Resolution was a letter dated
M ay 16, 1996, and also signed by Eck as O rient M ineral’s President.
This letter was on Orient M ineral’s letterhead and bore the impression
6
“Chop” in this context refers to the company’s seal.
7
of its corporate seal. It was addressed to the B ank of China and
enclosed the M ay 16th Board Resolution, w hich it characterized as
authorizing Preston Jones as Orient M ineral’s sole and exclusive agent
to approve, direct, or otherwise designate the funds on deposit with the
Bank pursuant to a wire transfer from M cKee. The letter further stated
that the M ay 16th Board Resolution was confirmed and ratified in all
respects and that Preston Jones shall have full and complete authority
with regard to the disposition of said funds.
On M ay 21, 1996, Plaintiffs initiated a wire transfer of $3 million from
M cKee’s bank in the U nited States to the Bank’s sub-branch in Lingbao. Jones,
W ilson and Eck then traveled to China, where Yue met them and acted as their
interpreter.
In keeping with promises made to M cKee, the W il-Bao Board of D irectors
met in China on M ay 24, 1996, and adopted a resolution that provided that, until
W il-Bao repaid M cKee in full, “Preston Jones shall be appointed as the director
of W il Bao responsible for the management of the financial affairs of W il Bao
with the sole authority to approve any expenditure of Wil Bao in excess of
$25,000 U.S. dollars.” Unlike Orient M ineral’s M ay 16 Board Resolution, the
W il-Bao resolution made no “reference to the Bank of China; nor does it bear any
of the indicia of corporate authority (such as company letterhead, corporate seal
imprint, secretary’s attestation, officer’s cover letter).”
On M ay 27, 1996, Jones, W ilson, Eck, Yue and John Zhang (Yue’s
brother-in-law) met with Bank officials in Lingbao. The Americans at the
meeting spoke only English, while the Bank’s employees attending this meeting
8
spoke only Chinese. Because Yue could speak and understand both languages, he
acted as the interpreter for the entire group.
During this meeting, Orient M ineral’s President, Eck, gave Bank officials
1) the Orient M ineral Board Resolution directing that only Jones possessed
authority to dispose of the O rient M ineral funds that had been wired to the Bank’s
Lingbao sub-branch; and 2) Eck’s letter to the Bank, dated M ay 16, 1996,
reaffirming Jones’ sole authority to distribute these funds. Bank officials had
these documents translated into Chinese.
Jones then asked Yue to inform the Bank officials that the American group
wanted to open a permanent account for Orient M ineral. But Yue instead
informed Bank officials that the group wanted to open accounts for W il-Bao. Yue
then m isinformed the A mericans that Orient M ineral could not open its own
account with the Bank because it was not registered to do business in China; they
would, instead, have to open an account in the name of the joint venture,
W il-Bao. After some discussion, Jones, W ilson, and Eck agreed to open accounts
in the name of W il-Bao, so long as Jones still retained authority over any W il-Bao
expenditures over $25,000. The Americans then asked Yue to convey to Bank
officials that this restriction be placed on the W il-Bao accounts. The Americans
assumed Yue did so. But Bank officials testified that Yue never informed them
9
that this restriction was to be placed on the W il-Bao accounts. 7
At Yue’s request, the Bank opened two accounts for W il-Bao, one for U.S.
dollars, and the other for the local Chinese currency, Renminbi (“RM B”). Yue
completed the account application forms and provided the Bank with three
“chops,” those of Wil-Bao, Yue, and his bother-in-law Zhang, W il-Bao’s financial
director. These three “chops” would be required to negotiate any transaction at
the Bank on W il-Bao’s behalf. No other withdrawal restrictions beyond the
required three “chops” were placed on either account.
Believing, incorrectly, that he had sole authority to authorize expenditures
greater than $25,000 from the W il-Bao U.S. dollar account, Jones signed a bank
transfer slip moving all of Orient M ineral’s funds from its tem porary account into
W il-Bao’s U.S. dollar account. Before transferring the funds, the Bank verified
Jones’ identity by reviewing his passport.
Jones, W ilson, Eck and Yue met with one of the Bank’s officials, M r.
W ang, at the Lingbao sub-branch on M ay 29, 1996. Yue again acted as
interpreter for both sides. During that meeting, the Americans gave Wang the
recently approved W il-Bao resolution indicating Jones had to authorize any
7
Jones testified that Eck, during this M ay 27, 1996 meeting, also presented
the Bank officials with a copy of the recently approved W il-Bao resolution, which
indicated that Jones had to authorize any expenditure of W il-Bao funds in excess
of $25,000. But the district court found that, “[m]ore likely than not, the M ay
24th W il-Bao board resolution was presented to [the Bank’s] M r. W ang at the
[later] M ay 29th meeting at the Lingbao Sub-branch of the Bank of China.”
(Emphasis added.)
10
W il-Bao expenditure greater than $25,000. In addition, the Americans gave
W ang a handwritten note signed by Jones and Yue, by which Jones intended to
authorize the transfer of $1.215 million from W il-Bao’s U .S. dollar account to its
RM B account for the purchase of a gold mine, among other things. 8 This
handwritten note stated:
Authorization for David Yue Only
Transfer Funds inTo W il-Bao
5/29/96
Funds AllocaTed For Use
M r. P[e]ng $500,000-
Jiao Cun Town 450,000-
Vehicles 125,000-
Office Equip 10,000-
OperaTing Funds 130,000-
$1,215,000
This process confirmed, at least for Jones, his (mis)understanding that the
Bank would not pay out funds in excess of $25,000 from the W il-Bao U.S. dollar
account without his authorization. Further confirming Jones’ mistaken belief, the
Bank, on June 4, 1996, transferred $1.2 million from W il-Bao’s U.S. dollar
account to its RM B account, after the Chinese State Administration Exchange
Control (“SAEC”) approved the transfer. 9
After returning to the United States, Jones, on several occasions, sent Yue
written authorization to transfer funds from the W il-Bao U.S. dollar account to a
8
W ang does not recall receiving this handwritten note.
9
The SAEC “is a government agency charged with the regulation of foreign
exchange in China.”
11
Nevada company, Administrative Systems Corporation (“ASC”), in order to make
interest payments owed to M cKee. Yue made most of these transfers. But Bank
officials testified that the Bank conducted these transactions based, not on Jones’
written authorization, but on transfer slips filled out by Yue and accompanied by
the three required “chops.”
In the meantime, Yue was making other withdrawals from the W il-Bao
accounts, without Jones’ knowledge or authorization. For example, on August 22,
1996, the Bank, at Yue’s request, wired $400,000 from W il-Bao’s account to
Utah’s First Zions National Bank for Saren Gaowa’s benefit. Gaowa w as Y ue’s
wife.
And, on October 18, 1996, Yue transferred $1 million from the W il-Bao
account to an account in another Chinese bank, the International Department of
Industrial and Commercial Bank of China (“ICBC”), using these funds to
purchase a certificate of deposit (“CD”) that would mature in one year. Yue then
used the CD as collateral to obtain five loans from the ICBC to W il-Bao in a total
amount of six million RM B. “W hile a portion of those loan proceeds may have
been applied to the acquisition of a . . . mine and the lease of a high capacity mill,
the actual disposition of those loan proceeds remains unknown.”
In December 1996, Jones sent Yue written authorization to transfer $63,250
to ASC. In response, Yue sent W ilson a letter, written in broken English,
indicating that there was no money in the W il-Bao account to make this transfer if
12
W il-Bao was to start milling its ore. After receiving this message, Jones and
W ilson travelled to China in February 1997. There, Jones tried to review the
W il-Bao books, but was unable to understand them because they were in Chinese.
Yue did explain to Jones and W ilson that he had transferred some W il-Bao funds
to the ICBC bank in order to obtain several loans. Neither W ilson nor Jones
contacted the Bank or the ICBC to investigate Yue’s explanation further. Yue
promised to send the A mericans a “year-end financial statement” and otherwise
“assured” Jones and W ilson “ that everything was fine.”
Jones and W ilson again traveled to China in June 1997, accompanied by
Eck, W ilson’s controller, Ken Schmick, and Gayla Zhang, who apparently speaks
Chinese and has an accounting background. There, the group discovered that
“W il-Bao’s ledgers [were] hopelessly out of balance and not up to date,” and that
the W il-Bao accounts with the Bank contained only $21,000.
W hen confronted with this, Yue explained that he had transferred almost all
of the W il-Bao money to the ICBC. But no one at the ICBC would meet with the
American contingent to verify this. Eventually, Yue produced someone
purportedly from the ICBC to assure the Americans that they had $1 million in
the ICBC. This apparently satisfied the Americans, although Jones expressed
some concern about Yue’s being able to transfer all of W il-Bao’s money from the
Bank to the ICBC without Jones’ written authorization. But Jones did not check
with the Bank about this.
13
Jones and W ilson, with Gayla Zhang, returned to China in October 1997.
There, an ICBC official informed them that there were no W il-Bao funds in the
ICBC because Yue had used all of these funds as collateral for the loans he had
obtained. W ilson then removed Y ue as W il-Bao’s general manager, and W ilson
and Gayla Zhang took over operating the joint venture. The Chinese government
prosecuted Yue for embezzlement. He was convicted and sentenced to twelve
years’ imprisonment.
Orient M ineral and W il-Bao sued the Bank, Yue and Gaowa in federal
district court in Utah, asserting breach of contract and tort claims, and seeking to
impose a constructive trust on Gaowa’s home in Utah. 10 The Bank, in turn,
asserted its immunity as a foreign sovereign. In addition, the Bank alleged a
counterclaim based upon the language in O rient M ineral’s M ay 16, 1996 board
resolution promising to hold the Bank “harmless from all claims or liabilities of
any kind whatsoever, provided the directions of Preston Jones are followed by
said Bank.” The Bank expressly made its counterclaim contingent on the district
court’s finding it had jurisdiction to consider Plaintiffs’ claims against the Bank.
Following a thirteen-day bench trial, the district court concluded it had
subject matter jurisdiction over Plaintiffs’ claims only to the extent they were
based upon the $400,000 transfer to the Utah bank. The court found for the Bank
10
The district court eventually dismissed the claims against Yue because
Plaintiffs were unable to serve him. And Plaintiffs settled their claims against
Gaowa at the time of trial.
14
on the merits of those claims. Plaintiffs appeal (No. 05-4037), challenging
several aspects of that decision. The Bank cross-appeals (No. 05-4048),
challenging only the district court’s decision that it had subject matter over
Plaintiffs’ claims based upon the $400,000 transfer to the Utah bank.
After the trial, the district court dismissed the Bank’s counterclaim with
prejudice. The Bank appeals that decision in appeal N o. 05-4220.
II. A PPELLA TE JU RISD IC TIO N
As an initial matter, the parties challenge our jurisdiction to consider these
appeals. W e conclude we have appellate jurisdiction to consider all three of the
appeals before us.
Following trial, the district court, on January 26, 2005, entered judgment in
favor of the Bank on Plaintiffs’ claims based upon the Bank’s transferring
$400,000 from W il-Bao’s account in Lingbao to the Utah bank; and dismissed the
remainder of Plaintiffs’ claims for lack of subject matter jurisdiction. Although
the district court’s decision did not expressly address the Bank’s still-pending
contingent counterclaim, the district court, on January 27, entered judgment
pursuant to Fed. R. Civ. P. 58(a), and ordered that the Bank recover its “costs”
from Plaintiffs. 11 Treating the district court’s decision as a final, appealable order
11
Fed. R. Civ. P. 52(a) provides that, following trial to the court, “judgment
shall be entered pursuant to Rule 58.” And Rule 58(a)(1) provides, in pertinent
part, that “[e]very judgment . . . must be set forth on a separate document.”
15
under 28 U.S.C. § 1291, 12 Plaintiffs filed a notice of appeal within thirty days of
the entry of judgment (appeal No. 05-4037), and the Bank filed a notice of
cross-appeal within fourteen days of Plaintiffs’ notice of appeal (appeal
No. 05-4048).
In light of the fact that the district court’s January 26, 2005 decision did
not specifically resolve the Bank’s still-pending counterclaim, this court raised
concerns about our jurisdiction to consider the parties’ cross-appeals, because “a
judgment . . . that does not dispose of all claims is not considered a final
appealable decision under § 1291,” Jackson v. Volvo Trucks N. Am., Inc., 462
F.3d 1234, 1238 (10th Cir. 2006). At this court’s suggestion, the parties jointly
requested that the district court enter a Fed. R. Civ. P. 54(b) certification
permitting them to pursue their cross-appeals even though the district court’s
decision had not resolved all of the claims pending before it in this case. 13 In
12
28 U.S.C. § 1291 provides that “[t]he courts of appeals . . . shall have
jurisdiction of appeals from all final decisions of the district courts of the United
States.”
13
Rule 54(b) permits the district court to “direct the entry of a final
judgment as to one or more but fewer than all of the claims or parties” but “only
upon an express determination [by the district court] that there is no just reason
for delay and upon an express direction for the entry of judgment.” (Emphasis
added.) Rule 54(b) further provides that
[i]n the absence of such determination and direction, any order or
other form of decision, however designated, which adjudicates fewer
than all the claims or the rights and liabilities of fewer than all the
parties shall not terminate the action as to any of the claims or
(continued...)
16
response to the parties’ request, the district court instead dismissed the B ank’s
counterclaim, presumably with prejudice, indicating that the court had already
“finally adjudicated the Bank’s remaining counterclaim[]” when it previously
entered judgment for the Bank on Plaintiffs’ claims. 14
The district “court’s subsequent issuance of an order explicitly adjudicating
all remaining claims may cause a case to ripen for appellate review.” Jackson,
462 F.3d at 1238 (quotation omitted). That is true here. See Fed. Sav. & Loan
Ins. Corp. v. Huff, 851 F.2d 316, 317 (10th Cir. 1988) (en banc). W e, therefore,
have appellate jurisdiction to consider the parties’ cross-appeals, Nos. 05-4037
and 05-4048.
13
(...continued)
parties, and the order or other form of decision is subject to revision
at any time before the entry of judgment adjudicating all the claims
and the rights and liabilities of all the parties.
14
The district court did not specify whether its dismissal was with or
without prejudice. The Tenth Circuit recognizes a “general rule [] that a party
cannot obtain appellate jurisdiction where the district court has dismissed at least
one claim without prejudice because the case has not been fully disposed of in the
lower court.” Jackson, 462 F.3d at 1238 (emphasis added). But here, it is clear
that the district court intended to dismiss the Bank’s contingent counterclaim with
prejudice. In its decision expressly dismissing the Bank’s counterclaim, the
district court indicated that its earlier decision had in fact “finally adjudicated the
Bank’s remaining counterclaim[],” because the Bank’s counterclaim was
contingent on the court’s imposing some liability on the Bank, and because the
court’s decision disposing of all of Plaintiffs’ claims did not impose any liability
on the Bank. Cf. Styskal v. W eld County Bd. of County Comm’rs, 365 F.3d 855,
858-59 (10th Cir. 2004) (noting dismissal without prejudice means dismissal
without barring litigant from refiling; citing Semtek Int’l Inc. v. Lockheed M artin
Corp., 531 U.S. 497, 505-06 (2001)).
17
In addition, the Bank, in appeal No. 05-4220, timely appealed from the
district court’s decision explicitly dismissing the Bank’s contingent counterclaim
and ending this litigation. 15 W e, therefore, have appellate jurisdiction to consider
that appeal as well. See 28 U.S.C. § 1291.
III. D ISC USSIO N
A. CRO SS-APPEALS: Nos. 05-4037 and 05-4048
1. W hether, and to w hat extent, the district court had subject matter
jurisdiction over Plaintiffs’ claims against the Bank under the FSIA.
a. Standard of review
This court will review de novo the district court’s determination of its
subject matter jurisdiction under the FSIA, reviewing factual findings for clear
error. See Southw ay v. Cent. Bank of N igeria, 328 F.3d 1267, 1272 (10th Cir.
2003).
b. Background
For most of the time since the United States’ inception, foreign sovereigns
15
Plaintiffs argue that the Bank’s notice of appeal underlying this separate
appeal, No. 05-4220, was untimely. They contend that, because the district court
thought it was “finally adjudicating” the Bank’s contingent counterclaim at the
time the court entered judgment for the Bank on all of Plaintiffs’ claims, in
January 2005, the Bank should have filed its notice of appeal challenging the
district court’s (implicit) decision denying the Bank relief on its contingent
counterclaim then. But the district court’s earlier order did not explicitly address
the Bank’s counterclaim and so did not put the Bank on notice that it needed to
file a notice of appeal at that time. Because the district court, in this case, did not
explicitly dismiss the Bank’s counterclaim until its order dated July 6, 2005, the
Bank’s notice of appeal filed within thirty days of that decision was timely. See
Fed. R. App. P. 4(a)(1)(A).
18
have enjoyed almost complete immunity from suit in American courts. See
Republic of Austria v. Altmann, 541 U.S. 677, 688-89 (2004); Argentine Republic
v. A merada H ess Shipping C orp., 488 U.S. 428, 434 n.1 (1989); Verlinden B.V.
v. Cent. Bank of Nigeria, 461 U.S. 480, 486 (1983). In 1952, however, the State
Department adopted a more “‘restrictive’ theory of foreign sovereign immunity.”
Verlinden, 461 U.S. at 486-87; see also Altmann, 541 U.S. at 689-90. Under this
restrictive theory, foreign sovereigns still enjoyed immunity for public or
sovereign acts, but they no longer had unqualified immunity for private or
commercial activity. See Verlinden, 461 U.S. at 487; see also Altmann, 541 U.S.
at 690; Saudi Arabia v. Nelson, 507 U.S. 349, 359-60 (1993). Congress codified
this restrictive theory when it enacted the FSIA in 1976. See Permanent M ission
of India to the United Nations v. City of New York, 127 S. Ct. 2352, 2357 (2007).
The FSIA provides the sole source of American courts’ subject matter
jurisdiction over a foreign sovereign. See Amerada Hess Shipping Co., 488 U.S.
at 435, 439, 443; see also Permanent M ission of India, 127 S. Ct. at 2355; Nelson,
507 U.S. at 355. A foreign state is still presumptively immune from suit. See 28
U.S.C. § 1604; see also Permanent M ission of India, 127 S. Ct. at 2355; Nelson,
507 U.S. at 355. But the FSIA “carves out certain exceptions to its general grant
of immunity.” Altmann, 541 U.S. at 691. “These exceptions are central to the
Act’s functioning: ‘At the threshold of every action in a district court against a
foreign state, . . . the court must satisfy itself that one of the exceptions applies,’
19
as ‘subject-matter jurisdiction in any such action depends’ on that application.”
Id. (quoting Verlinden, 461 U.S. at 493-94); see also Amerada Hess Shipping, 488
U.S. at 434-35.
In considering whether a foreign sovereign is immune from suit in the
United States under the FSIA, courts employ a burden-shifting analysis. See
Southway, 328 F.3d at 1271. The defendant must first establish a prima facie
case that it is a sovereign state, creating a rebuttable presumption of immunity.
See Cruz v. United States, 387 F. Supp. 2d 1057, 1062 (N.D. Cal. 2005). Once
the foreign sovereign makes that prima facie showing of immunity, the plaintiff
has the burden of production to make an initial showing that an FSIA exception to
foreign immunity applies. See Southw ay, 328 F.3d at 1271; see also Cargill Int’l
S.A. v. M /T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993). If the plaintiff
makes such a showing implicating an exception, then the foreign sovereign bears
the “ultimate burden of proving,” by a preponderance of the evidence, that the
exception does not apply in that case. Southway, 328 F.3d at 1271.
c. The FSIA’s commercial activity exception
In this case, Plaintiffs do not dispute that the Bank is an instrumentality of
a foreign sovereign— the People’s Republic of China. 16 See also Voest-Alpine
16
In its appellate brief, the Bank asserts that, in 2004,
the Government of China established Central Huijin Investment
Company Limited and converted the Bank into a joint stock company
(continued...)
20
Trading USA Corp. v. Bank of China, 142 F.3d 887, 890 (5th Cir. 1998) (“The
Bank of China is an instrumentality of the People’s Republic of China.”).
Therefore, the Bank has made a prima facie showing of immunity. See Southway,
328 F.3d at 1271.
Plaintiffs assert, however, that the FSIA’s commercial activity exception,
see 28 U.S.C. § 1605(a)(2), applies in this case to give United States courts
subject matter jurisdiction. The “commercial activity” exception is the FSIA’s
“most significant . . . exception[]” to foreign sovereign immunity. Republic of
Argentina v. W eltover, Inc., 504 U.S. 607, 611 (1992). It “is at the heart” of the
FSIA ’s codification of the restrictive theory of foreign sovereign immunity.
Joseph F. M orrissey, Simplifying the Foreign Sovereign Immunities Act: If a
Sovereign Acts Like a Private Party, Treat It Like One, 5 Chi. J. Int’l L. 675, 682
(W inter 2005); see also W eltover, 504 U.S. at 612-13.
In this case, the parties also do not dispute that the Bank is engaged in
comm ercial activity. See Voest-Alpine Trading, 142 F.3d at 892 (parties did not
16
(...continued)
owned by CH IC. The Bank then became the Bank of China Limited[.]
In August 2005, ten percent of the shares of Bank of China Limited was
sold to Royal Bank of Scotland, and in September 2005, another ten
percent was sold to Temasek Holdings of Singapore.
These changes do not affect this litigation because “instrumentality status [is]
determined at the time suit is filed.” Dole Food Co. v. Patrickson, 538 U.S. 468,
478 (2003); see also Kirkham v. Societe A ir France, 429 F.3d 288, 290 (D.C. Cir.
2005).
21
dispute that “the Bank of China is a foreign state engaged in commercial
activity”). Nevertheless, there must also be a sufficient nexus between the B ank’s
commercial activity and the United States: “For there to be jurisdiction in this
case,” therefore, Plaintiffs’ “action must be ‘based upon’ some ‘commercial
activity’ by [the Bank] that had ‘substantial contact’ with the United States w ithin
the meaning of the [FSIA].” Nelson, 507 U.S. at 356; see also M orrissey, supra,
at 676-77, 683-84; W illiam R . Dorsey, III, Reflections on the Foreign Sovereign
Immunities Act After Twenty Years, 28 J. M ar. L. & Com. 257, 264 (1997).
The FSIA’s “commercial activity exception is broken down into three
clauses,” each identifying a sufficient connection to the United States necessary
“to satisfy the jurisdictional nexus requirement.” Voest-Alpine Trading, 142 F.3d
at 892. The FSIA provides:
A foreign state shall not be immune from the jurisdiction of courts of
the United States or of any of the States in any case —
....
in which the action is based upon [1] a commercial activity
carried on in the United States by the foreign state; or
[2] upon an act performed in the United States in
connection with a commercial activity of the foreign state
elsewhere; or [3] upon an act outside the territory of the
United States in connection with a commercial activity of
the foreign state elsewhere and that act causes a direct
effect in the United States.
28 U.S.C. § 1605(a)(2) (numbering in brackets added). In this case, Plaintiffs
assert that the district court has subject matter jurisdiction over their claims
22
asserted against the Bank under all three clauses of the commercial activity
exception.
In addressing whether a federal court has subject matter jurisdiction over
Plaintiffs’ claims, we must first identify “the particular conduct on which
[Plaintiffs’] action is based.” Nelson, 507 U.S. at 356 (quotation omitted). That
is because, for FSIA purposes, the statutory phrase “based upon,” 28 U.S.C. §
1605(a)(2), “is read most naturally to mean those elements of a claim that, if
proven, would entitle a plaintiff to relief under his theory of the case.” Nelson,
507 U.S. at 357. Our focus, then, must be on the “specific claim[s]” that
Plaintiffs assert against the Bank and the “elements of th[ose] claim[s] that, ‘if
proven, would entitle [Plaintiffs] to relief under [their] theory of the case.’”
Globe Nuclear Servs. & Supply (GNSS), Ltd. v. AO Techsnabexport, 376 F.3d
282, 287 (4th Cir. 2004) (quoting Nelson, 507 U.S. at 357).
In this case, although Plaintiffs asserted at least five different theories of
recovery against the Bank, all of their claims are based on the Bank’s alleged
breach of a duty, created contractually or otherwise, 1) to keep safe the funds
Orient M ineral wired to its temporary account in the Bank’s Lingbao sub-branch,
and to disburse those funds only according to Jones’ directions; and 2) to require
Jones’ authorization for any withdrawals from W il-Bao’s accounts in an amount
23
greater than $25,000. 17
i. W hether Plaintiffs’ claims are “based upon” the Bank’s
“commercial activity carried on in the U nited States”
Section 1605(a)(2)’s first clause applies when the “the action is based upon
a commercial activity carried on in the United States by the foreign state.”
“‘[C]ommercial activity’ means either a regular course of commercial conduct or
a particular commercial transaction or act.” 28 U.S.C. § 1603(d). The phrase
17
Plaintiffs specifically alleged the following claims against the Bank:
1) The Bank fraudulently misrepresented to Plaintiffs that it would a) keep Orient
M ineral’s funds safe in O rient M ineral’s temporary account in the B ank’s
Lingbao sub-branch and disburse those funds only according to Jones’ directions;
and b) require Jones’ authorization for w ithdrawals from W il-Bao’s accounts in
amounts greater than $25,000. 2) The Bank breached two contracts it had with
Plaintiffs: a) The Bank, in its M ay 14, 1996 letter, agreed to keep safe Orient
M ineral’s funds wired to its temporary account in the Bank’s Lingbao sub-branch
and to disburse those funds according to Jones’ directions. And, b) on M ay 27,
1996, the Bank entered into an account agreement with W il-Bao which required
Jones’ authorization for withdrawals in amounts greater than $25,000. 3) The
Bank owed Orient M ineral and W il-Bao, as its customers, duties to exercise care
in opening and handling their accounts; to understand and follow its customers’
instructions; to be alert to suspicious circumstances; and to prevent fraud. The
Bank was negligent when it breached these duties by permitting Yue to make
withdrawals from the W il-Bao accounts in amounts greater than $25,000 without
Jones’ authorization. 4) The Bank conspired with Yue, Gaowa and others to
commit fraud against Plaintiffs by a) falsely asserting, in its M ay 14, 1996 letter,
that it would keep Orient M ineral’s money safe; and b) “staging” the M ay 27
meeting between officials from Orient M ineral, W il-Bao and the Bank, during
which the group created the W il-Bao accounts. 5) The Bank negligently
misrepresented to Plaintiffs, a) in its M ay 14, 1996 letter, that it would keep safe
Orient M ineral’s money, wired to its temporary account in the Bank’s Lingbao
sub-branch; and b) failed to advise Plaintiffs’ representatives, during the M ay 27,
1996 meeting at the Lingbao sub-branch, that the Bank would not follow
Plaintiffs’ instructions requiring that withdrawals of more than $25,000 from
W il-Bao’s accounts have Jones’ authorization.
24
“‘commercial activity carried on in the United States’ means commercial activity
carried on by [a foreign] state and having substantial contact with the United
States.” Id. § 1603(e).
Plaintiffs assert several ways in which the Bank carries on comm ercial
activity in the United States. First, the Bank drafted a letter, dated M ay 14, 1996,
promising to keep safe the funds O rient M ineral wired to its tem porary account in
the Bank’s Lingbao sub-branch until Orient M ineral’s representative, Jones,
arrived in China. W ith this letter, according to Plaintiffs, the Bank established an
ongoing business relationship with Orient M ineral.
But the evidence established that it was Yue, a director of Orient M ineral
and W il-Bao’s manager, who made arrangements with the Bank, in China, for
Orient M ineral to wire $3 million into a temporary account in the Bank’s Lingbao
sub-branch. At W ilson’s direction, Yue, in making these arrangements, requested
that the Bank draft a letter that would include account routing instructions and a
promise to keep Orient M ineral’s funds safe until Orient M ineral’s representative,
Jones, arrived in China. The Bank provided Yue with such a letter, dated M ay 14,
1996, written in Chinese and addressed to Yue. It was Yue, not the Bank, who
sent this letter to W ilson in the U nited States, along w ith a rough English
explanation. Orient M ineral then responded to the Bank’s letter with the Orient
M ineral resolution making Jones its sole representative and agreeing to hold the
Bank harmless if it followed Jones’ directions. Eck also drafted a letter to the
25
Bank reiterating these points. But Eck delivered these two Orient M ineral
documents in person to the Bank’s Lingbao sub-branch when Eck accompanied
Jones to China. This series of events can not be construed as the Bank’s carrying
on commercial activity in the United States. 18
Plaintiffs next argue that the Bank carries on comm ercial activity in the
United States by operating a branch Bank in New York City. W e agree. See
Callejo v. Bancomer, S.A., 764 F.2d 1101, 1105 (5th Cir. 1985) (noting foreign
bank “regularly engaged in commercial activity in the United States,” where,
among other things, bank operated branch bank in Los Angeles). But “the fact
that a foreign sovereign is engaged in comm ercial activity in the United States
does not serve as a license for United States courts to entertain all claims against
it.” Dorsey, supra, at 294; see also id. at 296 (noting that “the test for jurisdiction
under” the commercial activity exception’s “first clause is something more than
18
Plaintiffs further allege that the Bank’s M ay 14 letter represented an offer
to create a contract with Orient M ineral, and that Orient M ineral accepted that
contract when it wired $3 million from a W achovia Bank account in the United
States to the temporary account the Bank established for O rient M ineral in its
Lingbao sub-branch. Thus, according to Plaintiffs, they created this contract in
the United States. The district court agreed.
Even so, the Bank’s actions in this regard are insufficient to establish that
the Bank was carrying on commercial activity in the United States. The Bank did
not take any actions in the United States to negotiate the contract. Rather, it
negotiated the arrangements for Orient M ineral’s temporary account in China with
only Yue, as a representative of Orient M ineral and W il-Bao. It was Yue who
forwarded the Bank’s letter offering a contract to the United States. Further, the
focus of this contract was centered in China, where it w as to be performed.
26
just a ‘doing business’ test, that is, that the foreign sovereign can be sued in the
United States . . . even though there is no specific connection between the law suit
and the United States”). Rather, Plaintiffs’ claims must be “based upon” that
comm ercial activity. See Reiss v. Societe Centrale du Groupe des Assurances
Nationales, 235 F.3d 738, 747 (2d Cir. 2000); see also Kirkham, 429 F.3d at 293
(noting that “once a foreign state engages in a commercial activity in the United
States, it becomes subject to litigation based upon that activity–just like any other
commercial actor”) (emphasis added).
Plaintiffs point to the fact that, when M cKee transferred $3 million for
Orient M ineral, from an American bank to Orient M ineral’s temporary account in
the Bank’s Lingbao sub-branch, that wire transfer went through the Bank’s New
York branch. And when the Bank transferred W il-Bao funds back to the United
States, as Jones requested, those transfers also may have gone through the New
York branch. These connections alone, however, are insufficient to establish
subject matter jurisdiction under the first clause of the FSIA’s comm ercial
activity exception because none of Plaintiffs’ claims against the Bank are “based
upon” these particular transactions. See N elson, 507 U .S. at 356-58 19 ; see also
19
In Nelson, an American hired to work in a Saudi Arabian hospital
complained to his supervisors about safety defects in the hospital’s oxygen and
nitrous oxide lines. See 507 U.S. at 351-52. The plaintiffs (the employee and his
wife) alleged that, because he complained, Saudi police officers arrested and
tortured the American employee. See id. at 352-53. The plaintiffs sued several
Saudi instrumentalities alleging tort claims, including failure to warn the
(continued...)
27
Goodman Holdings v. Rafidain Bank, 26 F.3d 1143, 1144-46 (D.C. Cir. 1994)
(rejecting argument that there was a sufficient nexus between the Iraqi
government bank’s commercial activity carried on in the United States and claim
asserted against the bank by several Irish companies, alleging that the bank had
failed to make payments under a letter of credit, even though the bank had made
previous payments from accounts the Iraqi bank had in the United States); Gen.
Elec. Capital Corp. v. Grossman, 991 F.2d 1376, 1382-84 (8th Cir. 1993) (holding
that the fact that defendant operated airline that served destinations in the United
States did not provide United States courts with subject matter jurisdiction over
claims against the defendant that were not based upon its operation of the airline,
but were instead based upon the defendant’s negotiations to purchase another
airline, where negotiations took place “primarily” outside the United States);
W ahba v. Nat’l Bank of Egypt, 457 F. Supp. 2d 721, 735 (E.D. Tex. 2006)
(holding National Bank of Egypt’s specific commercial activity implicated by
19
(...continued)
employee of such dangers stemming from his employment by a Saudi hospital.
See id. at 353-54. The plaintiffs asserted that the FSIA’s commercial activity
exception’s first clause provided American courts with subject matter jurisdiction
over their claims asserted against the Saudi government. See id. at 356. The
Supreme Court disagreed, see id. at 363, holding that, although Saudi Arabia had
arguably engaged in commercial activity in the United States when it recruited
and hired the employee to work in a Saudi hospital, the plaintiffs’ claims were not
based upon that particular commercial activity or the resulting employment
contract. See id. at 351-54, 358-59. Rather, the plaintiffs’ claims were instead
based upon Saudi Arabia’s allegedly tortious conduct, which was not commercial
but instead sovereign activity–the exercise of police power. See id. at 358-63.
28
plaintiffs’ claims was financing plaintiffs’ businesses in Egypt; the B ank’s
contact with the United States regarding these particular transactions w as only
“sporadic”; and, therefore, plaintiffs’ claims were not “based on” the Bank’s
commercial activity in the United States).
Plaintiffs further argue that the Bank’s transfer of $400,000 of W il-Bao’s
funds to the bank in Utah amounts to the Bank’s carrying on commercial activity
in the United States. W e later conclude that this activity was sufficient to subject
the Bank to jurisdiction for this particular act under the third clause of
§ 1605(a)(2). However, we do not believe this single act constitutes “commercial
activity carried on in the United States” by the Bank under the first clause of
§ 1605(a)(2). The Bank acted within China, not the United States. The
consequence of the act was felt in the United States when the Utah bank received
the funds but the Utah bank was not acting as an agent of the Bank. Rather, it
was acting as an independent, arms-length entity in an ordinary comm ercial
transaction. So, the Utah bank’s act in the United States cannot be attributed to
the Bank.
For these reasons, Plaintiffs have failed to assert sufficient evidence
establishing that their action is “based upon” the Bank’s commercial activity
“carried on in the United States.” The district court, therefore, did not have
subject matter jurisdiction over Plaintiffs’ claims based upon the commercial
activity exception’s first clause.
29
ii. W hether Plaintiffs’ claims are based upon “an act” the
Bank “performed in the United States in connection w ith”
the Bank’s “commercial activity . . . elsew here.”
Section 1605(a)(2)’s second clause applies when “the action is
based . . . upon an act performed in the United States in connection with a
commercial activity of the foreign state elsewhere.” Under this clause, a
“material connection must exist between the act performed in the United States
and plaintiff’s cause of action.” Pere v. Nuovo Pignone, Inc., 150 F.3d 477, 482
(5th Cir. 1998); see also Grossman, 991 F.2d at 1384; Siderman de Blake v.
Republic of Argentina, 965 F.2d 699, 709 (9th Cir. 1992).
In invoking the second clause of the FSIA’s comm ercial activity exception,
Plaintiffs rely on the same Bank conduct that Plaintiffs asserted to invoke
§ 1605(a)(2)’s first clause. For the same reasons stated above, however, Plaintiffs
here have failed to establish that their claims are based upon any action the Bank
took in the United States. See Pere, 150 F.3d at 482; Grossman, 991 F.2d at
1384.
iii. W hether Plaintiffs’ claims are based upon an act the
Bank took outside the United States that “cause[d] a direct
effect in the United States.”
The commercial activity exception’s third clause provides that
[a] foreign state shall not be immune from the jurisdiction of courts of
the U nited States . . . in any case . . . in w hich the action is
based . . . upon an act outside the territory of the U nited States in
connection with a commercial activity of the foreign state elsewhere
and that act causes a direct effect in the United States.
30
28 U.S.C. § 1605(a)(2). The district court in this case held that it had jurisdiction
under the third clause to consider only Plaintiffs’ claims that are based upon the
Bank’s transferring $400,000 to the Utah bank. W e agree.
Although it is clear that the Bank was carrying on commercial activity in
China, we must consider here what specific acts the Bank took in China that
underlie Plaintiffs’ claims. On appeal, Plaintiffs rely primarily on the B ank’s
conduct in transferring, at Yue’s request, $400,000 from W il-Bao’s account in the
Bank’s Lingbao sub-branch. 20 W e address that Bank act first. The Bank’s
transferring this $400,000 out of W il-Bao’s account was certainly connected with
the Bank’s commercial activity in China. The dispositive question here, then, is
whether this Bank conduct, taken in China, had a direct effect in the United
States.
A “direct effect” need not be substantial or foreseeable, but it must be more
than trivial. See W eltover, 504 U.S. at 617-18. And it will be sufficiently
“‘direct’ if it follows as an immediate consequence of the defendant’s activity.”
Id. at 618 (quotation, alteration omitted). 21 Applying that reasoning to this case,
20
The Bank acknowledges that “[a]ll of the acts of the Bank at issue
here–including its receipt and review of W il-Bao’s transfer request, consultation
with the SAEC, and execution of the transfer of $400,000 out of W il-Bao’s U.S.
dollar account–were performed in China.”
21
In W eltover, the Argentine government issued bonds that provided, among
other things, that Argentina would pay interest and principal due on those bonds
in United States dollars through a transfer on the London, Frankfurt, Zurich or
(continued...)
31
it is clear that the Bank’s transfer of $400,000 of W il-Bao’s funds from its
account in the Bank’s Lingbao sub-branch to the Utah bank had a direct effect in
the United States— the Utah bank received $400,000 on Gaowa’s behalf. This
“follow[ed] as an immediate consequence” of the Bank’s alleged wrongful
conduct in permitting Yue to withdraw $400,000 from W il-Bao’s account without
Jones’ authorization and to direct those funds be transferred to Utah. 22
21
(...continued)
New York market, at the creditor’s election. See 504 U.S. at 609-10. Argentina
defaulted on those bonds. See id. at 610. Two creditors w ho had specifically
requested that Argentina pay them in New York sued Argentina for breach of
contract in a New York federal court. See id. The Supreme Court adopted the
Second Circuit’s definition of a “direct effect” as one that “follows as an
immediate consequence of the defendant’s activity.” Id. at 618 (quotation,
alteration omitted). The Court had “little difficulty concluding that Argentina’s
[breach] had a ‘direct effect’ in the United States” — “[m]oney that was supposed
to be delivered to a New York bank for deposit was not forthcoming.” Id. at
618-19.
22
Contrast W eltover and this case with the Tenth Circuit’s decision in
United W orld Trade, Inc. v. M angyshlakneft Oil Production Ass’n, where this
court held that the plaintiffs had not established that any direct effect had
occurred in the United States. See 33 F.3d 1232, 1234, 1237 (10th Cir. 1994). In
United W orld Trade, a Colorado corporation (United W orld Trade, or “UW T”)
entered into several agreements in Kazakhstan and M oscow with entities affiliated
with the Kazakh government that involved UW T arranging for purchasers for
Kazakh oil. See id. at 1234-35 & 1234 n.2. Although these agreements w ere to
be performed in their entirety outside the United States, see id. at 1235-36, 1238,
UW T asserted that Kazakhstan’s refusal to make all the oil shipments required
under these agreements had a direct effect in the United States because:
Kazakhstan was to pay UW T in United States dollars, which would have required
some United States bank to become involved at some point in the payment
process, see id. at 1236-37; UW T incurred expenses and potential liability in the
United States when it agreed to indemnify one of the oil buyers after Kazakhstan
lost the bill of lading for one of its oil shipments, see id. at 1238; and UW T lost
(continued...)
32
The Bank suggests that the “direct effect” occurring in the United States
must be “legally significant” in order for an American court to have subject
matter jurisdiction under the commercial activity exception’s third clause. There
are courts that have adopted a “legally significant act” test when applying
§ 1605(a)(2)’s third clause. See Virtual Countries, Inc. v. Republic of S. Africa,
300 F.3d 230, 240 (2d Cir. 2002); Filetech S.A. v. France Telecom S.A., 157 F.3d
922, 931 (2d Cir. 1998); Adler v. Fed. Republic of Nigeria, 107 F.3d 720, 726-27
(9th Cir. 1997). But this test is defined in different ways. Some courts require
that the direct effect occurring in the United States be a direct effect caused by
legally significant conduct outside the United States. See Virtual Countries, 300
F.3d at 240. That test would be met here. The Bank’s permitting Yue to
withdraw $400,000 from W il-Bao’s account in Lingbao without Jones’
authorization is certainly legally significant to Plaintiffs’ claims. Other authority,
however, defines the “legally significant act” test to require that a legally
significant act occur within the United States. See Adler v. Fed. Republic of
Nigeria, 219 F.3d 869, 876 (9th Cir. 2000); see also Virtual Countries, 300 F.3d
at 241 (assuming there was a “legally significant direct effect”); cf. Keller v.
Cent. Bank of Nigeria, 277 F.3d 811, 817-18 (6th Cir. 2002) (discussing, but
22
(...continued)
profits in the United States when Kazakhstan breached its contract with UW T; see
id. This court rejected all three of these theories as insufficient to establish that
Kazakhstan’s breaching its contract with UW T had any “direct effect” in the
United States. See id. at 1237-38.
33
declining to adopt, legally significant act test); Voeste-Alpine, 142 F.3d at 894-95
(same).
This court has never adopted the “legally significant act” test, and we now
explicitly reject that additional, judicially-created criteria to satisfy 28 U.S.C.
§ 1605(a)(2)’s third clause. In United W orld Trade, we recognized “that courts
often look to the place where legally significant acts giving rise to the claim
occurred in determining the place where a direct effect may be said to be
located.” 33 F.3d at 1239 (quotation omitted). In that case, this court was
struggling to resolve the “amorphous . . . issue” of “locat[ing] the site of financial
harm to a corporation, . . . where the cause of the injury is an omission.” Id.
There, we ultimately examined “all of the facts . . . together . . ., including the
‘legally significant acts,’” before concluding that the conduct at issue in that case
did not produce a direct effect in the United States. Id. W e thus will consider the
legally significant acts, as well as other relevant facts under the circumstances of
a given case, to aid our determination. In doing so, we look to where the legally
significant acts occurred as simply one of several means to determine w hether a
direct effect occurred in the United States. See M orrissey, supra, at 688 (making
this observation). In United W orld Trade, we did not make legally significant
acts in the United States a prerequisite for jurisdiction under the third clause of
28 U.S.C. § 1605(a)(2).
W e reject engrafting this additional requirement necessary to satisfy
34
§ 1605(a)(2)’s third clause for many reasons. First, the statute’s text does not
require it. See Voest-Alpine, 142 F.3d at 894; see also Keller, 277 F.3d at 818.
And the Supreme Court has counseled against adding extra-legislative
requirements to statutory text. See W eltover, 504 U.S. at 618 (rejecting
suggestion that § 1605(a)(2) contains “unexpressed requirement[s]”). Second,
requiring legally significant acts to occur in the United States would render the
second and third clauses of § 1605(a)(2) redundant, as any legally significant act
occurring in the United States would likely also satisfy at least the second clause
(a foreign sovereign’s act in the U nited States), if not also the first clause (a
foreign sovereign’s commercial activity carried on in the United States). See
Voest-Alpine, 142 F.3d at 895; see also M orrissey, supra, at 677 (noting that the
comm ercial activity exception’s first and second clauses address “[s]uits based on
actions that actually occur in the United States”). Third, the phrase “legally
significant act” is vague and ambiguous, adding nothing to the analysis. Thus, w e
will simply apply the third clause of § 1605(a)(2) as it is written, without judicial
adornment.
In this case, it is clear that the Bank’s commercial activity in China
produced a “direct effect” in the United States— the transfer of $400,000 to a
Utah bank. This case is unlike the circumstances addressed by this court in
United W orld Trade, where the plaintiff alleged a direct effect resulting from the
defendants’ omission or failure to act, and the effect was only a loss of corporate
35
profit in the United States, which we held was not a sufficient direct effect. See
United W orld Trade, 33 F.3d at 1236-39. Here, instead, the Bank took
affirmative action that caused an effect in the United States— money was received
in the United States. And that effect was direct, that is, it followed as “an
immediate consequence” of the Bank’s permitting Yue to withdraw more than
$400,000 from W il-Bao’s Chinese bank account without Jones’ authorization,
W eltover, 504 U .S. at 618 (quotation omitted), which was the essence of at least
one of Plaintiffs’ legal claims. For these reasons, the district court correctly held
that it had subject matter jurisdiction over Plaintiffs’ claims to the extent they
were based upon the Bank’s transferring $400,000 from W il-Bao’s account to
Saren Gaowa’s account in a bank in Utah.
On appeal, Plaintiffs also point to the Bank’s conduct of drafting its M ay
14, 1996 letter as an act taken in China, in connection with the B ank’s
comm ercial activity there, that had a direct effect in the United States. Because,
again, it is clear that this act underlies Plaintiffs’ claims, occurred in China and is
connected w ith the B ank’s commercial activity in China, the relevant inquiry here
is w hether that act caused a direct effect in the United States. Under the specific
facts of this case, we conclude it did not.
Plaintiffs assert that the Bank’s M ay 14 letter induced them into wiring
Orient M ineral’s funds to the Bank’s Lingbao sub-Branch. But the Bank wrote
this letter at Yue’s request, pursuant to the terms Yue requested. And Yue
36
requested these terms at W ilson’s insistence. Further, the Bank addressed the
letter to Yue, who was W il-Bao’s general manager and a director of Orient
M ineral, wrote the letter in Chinese and gave it to Yue in China. It was Yue who
sent the Bank’s letter to W ilson in the United States, along with Yue’s rough
explanation in English. Under these circumstances, Orient M ineral’s wiring
$3 million to the Bank’s Lingbao sub-branch was not “an immediate
consequence” of the Bank’s drafting this M ay 14 letter addressed and given to
Yue in China. W eltover, 504 U.S. at 618 (quotation omitted). The effect the
Bank’s conduct had in the United States, therefore, was indirect, rather than
direct. Orient M ineral’s response to the Bank’s letter was ultimately the result of
Yue’s unlawful course of conduct, which constitutes an intervening act not
attributable to the Bank.
Plaintiffs also point to the B ank’s thrice wiring funds from W il-Bao’s
accounts in the Bank’s Lingbao sub-branch to the United States through the
B ank’s N ew Y ork branch. B ut Plaintiffs’ claims are not based upon the two
transfers to the United States that Jones’ authorized. And we have already
concluded that the Bank’s unauthorized transfer of $400,000 to the Utah bank was
an act taken in China, in connection with the Bank’s comm ercial activity there,
that had a direct effect in the United States. This Utah transfer, therefore, is the
only Bank conduct that Plaintiffs rely upon that was taken outside the United
States, in connection with the Bank’s comm ercial activity in China, that had a
37
direct effect in the United States. 23
Plaintiffs, nevertheless, assert that, because the district court had subject
matter jurisdiction over Plaintiffs’ claims, to the extent they were based upon this
$400,000 transfer, that is sufficient to give the district court subject matter
jurisdiction over all of Plaintiffs’ claims, even those based upon conduct
occurring entirely in China. W e disagree.
W e look first to the FSIA’s text. See Permanent M ission of India, 127
S. Ct. at 2356. The FSIA specifically provides, in relevant part, that “a foreign
state shall be immune from the jurisdiction of the courts of the United States and
of the States except as provided in section 1605 to 1607 of this chapter.” 28
U.S.C. § 1604 (emphasis added). Thus, “a foreign sovereign is immune from suit
in any civil action in any court of the United States unless, and to the extent that,
one of the exceptions set forth in §§ 1605-1607 applies.” D avid P. Stew art,
Practising Law Inst., Litig. & Admin. Practice Course H andbook Series, Int’l
Business Litig. & Arbitration, The Foreign Sovereign Immunities Act 139 (2006)
(emphasis added). “[I]f the claim does not fall within one of the exceptions,
federal courts lack subject matter jurisdiction.” Verlinden, 461 U.S. at 489.
23
Plaintiffs also rely upon the Bank’s failure to notify Jones, “in
Tennessee,” of these unauthorized transfers. But that omission, as alleged,
occurred in the United States, and thus would not satisfy the third clause of
§ 1605(a)(2). Further, Plaintiffs have never alleged, and there was no evidence
presented at trial, suggesting that the Bank had ever promised to notify Jones of
any withdrawals from the W il-Bao account.
38
The third clause of the commercial activity exception provides subject
matter jurisdiction where “the action is based upon . . . an act [occurring] outside
the territory of the United States” that has caused “a direct effect in the United
States.”
28 U.S.C. § 1605(a)(2) (emphasis added). By its very terms, then, § 1605(a)(2)’s
third clause gives American courts subject matter jurisdiction over claims
stemming from a specific “act” outside the United States that has a direct effect in
the United States. In Nelson, the Supreme Court contrasted this language with
the language in § 1605(a)(2)’s first clause, which refers instead to an action based
upon a foreign sovereign’s commercial activity carried on in the United States.
See 507 U.S. at 357-58. 24 Thus, the district court correctly held in this case that it
did not have subject matter jurisdiction over Plaintiffs’ claims that were not based
upon the act of the Bank in transferring $400,000 from W il-Bao’s account in the
Bank’s Lingbao sub-branch to a Utah bank.
24
For this reason, Plaintiffs’ reliance on the Eighth Circuit’s decision in BP
Chemicals Ltd. v. Jiangsu Sopo Corp., 285 F.3d 677 (8th Cir. 2002), is misplaced.
In that case, the court was applying § 1605(a)(2)’s first clause, which bases an
American court’s subject matter jurisdiction on a foreign sovereign’s comm ercial
activity carried on in the United States. See 285 F.3d at 686. Because the
plaintiff in that case was able to establish that an element of one of its claims
involved the foreign sovereign’s commercial activity in the United States, the
Eighth Circuit held that the district court had subject matter over all of the
plaintiff’s claims. See id. at 682-84, 688. In fact, all of the claims in BP
Chemicals constituted an integrated scheme of “commercial activity,” even
though they alleged separate acts.
39
c. Conclusion.
For these reasons, we AFFIRM the district court’s determination that it had
subject matter jurisdiction to consider the merits of Plaintiffs’ claims, but only to
the extent that they were based upon the $400,000 transfer from W il-Bao’s
account in Lingbao to the First Zion’s National Bank in Utah. 25
2. W hether the district court erred in ruling for the Bank on
the merits of Plaintiffs’ claims that w ere based upon the
Bank’s transferring $400,000 from W il-Bao’s account to a
bank in Utah.
a. Standard of review
This court will review the district court’s factual findings, made after a
bench trial, for clear error; and its legal conclusions de novo. See Holdeman v.
Devine, 474 F.3d 770, 775 (10th Cir. 2007); see also Fed. R. Civ. P. 52(a).
b. Choice of law
The FSIA does not itself provide the substantive law governing a plaintiff’s
claims asserted against a foreign sovereign. See Cruz, 387 F. Supp. 2d at
1070-71. Rather, “the foreign state shall be liable in the same manner and to the
same extent as a private individual under like circumstances,” except that the
25
In light of this conclusion, we need not address Plaintiffs’ argument that
the district court abused its discretion in limiting pretrial discovery to facts
relevant only to this $400,000 transfer. To the extent that Plaintiffs are instead
arguing that the district court denied them discovery on matters pertinent to their
claims based upon the $400,000 transfer to U tah, the district court did not abuse
its discretion in doing so. See Santana v. City & County of Denver, 488 F.3d
860, 867 (10th Cir. 2007) (noting this court reviews discovery rulings for an
abuse of discretion).
40
foreign sovereign will not be liable for punitive damages. 28 U.S.C. § 1606. 26 In
this case, the parties and the district court primarily applied Utah law in
addressing Plaintiffs’ claims. On appeal, Plaintiffs do not contest the district
court’s doing so. Thus, we too will apply Utah law, although it is far from clear
that w ould be our conclusion if we conducted a proper choice-of-law analysis.
See Flying J Inc. v. Comdata N etwork, Inc., 405 F.3d 821, 831 n. 4 (10th Cir.
2005) (applying state law upon which the parties agree).
c. M erits
i. O verview
As explained in greater detail below, the theory of recovery underlying
most of Plaintiffs’ claims is that the Bank breached its duty to follow Jones’
directions in disbursing the $3 million in Orient M ineral’s temporary account in
the Bank’s Lingbao sub-branch. Although Jones sought to maintain control over
26
Section 1606 provides, in full, that,
[a]s to any claim for relief w ith respect to which a foreign state is not
entitled to immunity under section 1605 or 1607 of this chapter, the
foreign state shall be liable in the same manner and to the same extent
as a private individual under like circumstances; but a foreign state
except for an agency or instrumentality thereof shall not be liable for
punitive damages; if, however, in any case wherein death was caused,
the law of the place where the action or omission occurred provides, or
has been construed to provide, for damages only punitive in nature, the
foreign state shall be liable for actual or compensatory damages
measured by the pecuniary injuries resulting from such death which
were incurred by the persons for whose benefit the action was brought.
41
these funds by requiring his authorization before Yue could withdraw more than
$25,000 from the W il-Bao U.S. dollar account, Jones trusted Yue to convey this
restriction to the Bank. Plaintiffs’ claims fail primarily because there is no
evidence that Yue ever actually conveyed Jones’ requested restriction to the
Bank. Believing, wrongly, that this $25,000 restriction was in place, Jones
transferred Orient M ineral’s money into the W il-Bao accounts. Because the
$25,000 restriction Jones sought to place on the W il-Bao accounts was never
shown to have been conveyed to the Bank, the B ank is not liable for Yue’s
misappropriating W il-Bao’s funds. Plaintiffs’ contention that the circumstances
surrounding their dealings with the Bank should have put the Bank on notice that
Jones sought to restrict Yue’s access to W il-Bao’s funds is unavailing. W ith this
in mind, we turn to Plaintiffs’ specific arguments asserted on appeal.
ii. Breach of contract.
Plaintiffs alleged that the Bank, in its M ay 14, 1996 letter, agreed to keep
safe the funds Orient M ineral transferred into its temporary account with the
Bank, and further agreed to follow the instructions of O rient M ineral’s
representative for disbursing those funds. Plaintiffs further alleged that the Bank
breached this agreement when it transferred Orient M ineral’s money from its
temporary account into the newly created W il-Bao U.S. dollar account without
restricting Yue’s access to those funds; and further breached this contract when
the Bank permitted Yue to make withdrawals in excess of $25,000 from W il-Bao
42
accounts without Jones’ authorization.
On appeal, Plaintiffs challenge the district court’s determination that
Plaintiffs’ claim for breach of contract . . . fail[s]. First, the Bank of
China perform ed according to the terms of its agreement with Orient
M ineral: the Bank received Orient M ineral’s w ire transfer, held its
funds awaiting M r. Jones’ arrival in China, and then follow ed Jones’
direction to transfer those funds into W il-Bao’s account. The contract
betw een Orient M ineral and the Bank did not address the terms of the
contract to be formed between the W il-Bao joint venture and the Bank.
W il-Bao formed its own contract with the Bank of China
governing its accounts at the B ank. The terms of that contract did not
include a US $25,000 restriction on withdrawals, transfers or
remittances from W il-Bao’s U.S. dollar account, or any requirement
that the Bank contact Jones to obtain approval to process transactions
in the W il-Bao accounts. Consequently, the processing of the
U S $400,000 transfer on or about August 28, 1996 without Jones’
approval did not breach W il-Bao’s contract with the Bank.
(Footnote omitted.)
To the extent Plaintiffs are challenging the district court’s interpretation of
the parties’ agreements, we review those legal determinations de novo, see
Interwest Constr. v. Palmer, 923 P.2d 1350, 1358-59 (U tah 1996), and agree with
the district court’s construction of the contracts at issue here. To the extent
Plaintiffs are challenging the district court’s factual findings, we reject those
arguments because the trial record fully supports the district court’s
determination.
Plaintiffs specifically argue that their giving the M ay 24, 1996 W il-Bao
resolution to Bank officials notified the Bank that Jones wanted to place a
43
$25,000 restriction on Yue’s access to the funds in the W il-Bao U.S. dollar
account. That resolution acknowledged M cKee’s investment in W il-Bao, agreed
to repay M cKee in full before distributing any profits, and agreed to pay M cKee
an annual bonus of $333,333.33 for the next three years. The resolution went on
to “further resolve[] that until all said sums are repaid in full Preston Jones shall
be appointed as the director of W il Bao responsible for the management of the
financial affairs of W il Bao with sole authority to approve any expenditures of
W il Bao in excess of $25,000 US dollars.”
The testimony at trial was conflicting as to whether Plaintiffs ever gave the
W il-Bao resolution to Bank officials and, if so, when. The district court found
that it was “[m]ore likely than not, [that] the M ay 24th W il-Bao board resolution
was presented to [the Bank’s] M r. W ang at the M ay 29th meeting at the Lingbao
Sub-branch of the Bank of China.” 27 That factual finding is not clearly erroneous.
See W atson v. United States, 485 F.3d 1100, 1108 (10th Cir. 2007).
Because the parties created W il-Bao’s accounts on M ay 27, 1996, the terms
of the W il-Bao resolution, therefore, could not have been incorporated into the
27
The Bank did not require any board resolution from W il-Bao to open the
W il-Bao accounts on M ay 27, 1996. Nevertheless, Jones testified that he had Eck
give the Bank officials the W il-Bao resolution during the M ay 27 meeting.
W ilson testified both that Eck gave the W il-Bao resolution to Bank officials
during the M ay 27 meeting, and that this occurred instead during the M ay 29
meeting. M adame Liu, a Bank official who attended the M ay 27 meeting, and
M r. W ang, another Bank official who attended both the M ay 27 and M ay 29
meetings, testified that they do not recall ever seeing the W il-Bao resolution, at
least not until this litigation.
44
terms that governed the W il-Bao account. Nor could the Bank, in creating the
W il-Bao accounts, have disregarded a resolution that the Bank had not yet
received.
Further, Plaintiffs’ act of giving the W il-Bao resolution to a Bank official
on M ay 29 was not sufficient to put the Bank on notice that W il-Bao wanted
additional restrictions placed on its accounts. The W il-Bao resolution was not
addressed to the Bank and was not accompanied by any indicia of an official
directive, such as a corporate seal or a letter from W il-Bao’s officers. Even
Plaintiffs, in their post-trial arguments before the district court, refer to this
resolution as only an “internal” document. M oreover, although the resolution
required Jones’ authorization for “any expenditures of W il-Bao,” the resolution
did not specifically link that restriction to the Bank or W il-Bao’s accounts w ith
the Bank.
Plaintiffs also point to the note signed by Jones and Yue authorizing Yue to
expend $1.2 million. Jones gave Bank official W ang this note during the M ay 29
meeting. Plaintiffs assert that this note also should have put the Bank on notice
that Jones wanted a $25,000 restriction on W il-Bao account expenditures. That
note, however, handwritten on a piece of paper torn from a notebook, was not
addressed to the Bank and did not clearly indicate it was to be any sort of
authorization for the Bank to take some action. That note, therefore, would not
have put the Bank on notice that W il-Bao wanted a $25,000 restriction placed on
45
its accounts with the Bank.
For these reasons, the district court did not err in entering judgment for the
Bank on Plaintiffs’ breach-of-contract claim.
iii. Negligence
Plaintiffs also alleged that the Bank was negligent in permitting Yue to
misappropriate W il-Bao’s funds. Under Utah law, “[t]o establish a claim of
negligence, the plaintiff must establish four essential elements: (1) that the
defendant owed the plaintiff a duty, (2) that the defendant breached that duty,
(3) that the breach of duty was the proximate cause of the plaintiff’s injury, and
(4) that the plaintiff in fact suffered injuries or damages.” W ebb v. Univ. of
Utah, 125 P.3d 906, 909 (U tah 2005) (quotation omitted).
Plaintiffs specifically alleged that the Bank
ow es duties to its depositors to exercise due care in opening and
handling of its accounts. Said duties include the exercise of reasonable
care to understand and follow the instructions of its customers on
account opening, to be alert to suspicious circumstances and fraud in
opening and operating accounts, and to prevent fraudulent or
unauthorized transfers from said accounts. 28
(Footnote added.) Plaintiffs further alleged that the Bank breached these duties
owed to Plaintiffs by
(1) failing to follow directions given by Preston Jones as its sole and
exclusive representative to maintain its suspense account or open a new
28
On appeal, Plaintiffs also argue that the Bank’s M ay 14 letter created
additional duties the Bank owed Orient M ineral. But for the same reasons
mentioned above, we conclude it did not.
46
Orient M ineral account, or alternatively to establish a $25,000 restricted
W il-Bao USD account, in all cases subject to his approval and control;
(2) failing to be alert to suspicious circumstances and fraud on account
opening and upon transfer of the full $3 million from the suspense
account to the W il-Bao USD account, relying on the interpretation of
Yue, who would thereby possess exclusive control; (3) failing to take
reasonable safeguards to prevent the unauthorized transfer of funds
from the W il-Bao USD account by Yue in light of the facts known at
the B ank at the time of the transfers; and (4) failing to raise regulatory
issues or restrictions that required that the transfer not be made, and
that regulatory approval was required.
The district court determined that the Bank had not breached any duty owed
to Orient M ineral. That determination was not in error.
iv. Civil conspiracy to defraud Plaintiffs.
Plaintiffs alleged that the Bank conspired with Yue and Gaowa, among
others, to defraud Plaintiffs. “To prove civil conspiracy, five elements must be
shown: (1) a combination of two or more persons, (2) an object to be
accomplished, (3) a meeting of the minds on the object or course of action,
(4) one or more unlaw ful, overt acts, and (5) damages as a proximate result
thereof.” 29 Alta Indus. Ltd. v. Hurst, 846 P.2d 1282, 1290 n. 17 (Utah 1993)
29
As overt acts, Plaintiffs alleged, among other things, that the Bank’s M ay
14, 1996 letter induced Orient M ineral to transfer $3 million to the Bank’s
Lingbao sub-branch; the conspirators “staged” the M ay 27 meeting at the Bank
between Bank officials and Plaintiffs’ representatives; the Bank’s officials failed
“to perform normal ‘know-your-customer’ due diligence” at the meeting, and
failed to advise Plaintiffs’ representatives “of or raise any regulatory issues or
restrictions;” the Bank failed to follow Orient M ineral’s and W il-Bao’s
instructions; illegally opened and operated the W il-Bao “USD foreign exchange
account” in a manner that circumvented oversight by the C hinese government’s
SAEC; and engaged in “highly suspicious conduct inconsistent with
(continued...)
47
(quotation omitted). “Further, conspiracy to defraud requires proof of the
underlying fraud.” Gildea v. Guardian Title Co. of Utah, 970 P.2d 1265, 1271
(U tah 1998).
The district court determined that Plaintiffs had failed to prove any of these
required elements. W e agree. In particular, there was no evidence presented that
the Bank entered into any agreement w ith the other alleged co-conspirators.
M oreover, as we held above, there is no evidence that the Bank acted with the
intent to defraud Plaintiffs.
v. Fraud
Plaintiffs also alleged that the Bank defrauded them by falsely representing,
in the Bank’s M ay 14, 1996 letter, that it would keep safe the funds Orient
M ineral wired into its temporary account with the Bank, and would follow the
instructions of Orient M ineral’s representative.
Under Utah law, to bring a claim sounding in fraud, a party must allege
(1) that a representation was made (2) concerning a presently existing
material fact (3) which was false and (4) which the representor either
(a) knew to be false or (b) made recklessly, knowing that there was
insufficient knowledge upon which to base such a representation, (5) for
the purpose of inducing the other party to act upon it and (6) that the
other party, acting reasonably and in ignorance of its falsity, (7) did in
fact rely upon it (8) and w as thereby induced to act (9) to that party’s
injury and damage.
Gold Standard, Inc. v. Getty Oil Co., 915 P.2d 1060, 1066-67 (Utah 1996). Fraud
29
(...continued)
professionalism.”
48
must be shown by clear and convincing evidence. See Armed Forces Ins. Exch. v.
Harrison, 70 P.3d 35, 43 (Utah 2003); Kuhre v. Goodfellow, 69 P.3d 286, 291
(U tah Ct. A pp. 2003).
The district court held that Plaintiffs had failed to establish the elements
necessary to prove fraud by clear and convincing evidence. W e agree. In
particular, the record does not show that the Bank know ingly made any false
representations of material facts.
vi. Negligent misrepresentation
Finally, Plaintiffs alleged that the Bank negligently misrepresented to
Orient M ineral that it would keep safe Orient M ineral’s funds, transferred into a
temporary account with the B ank, and would follow Orient M ineral’s
representative’s instructions in disbursing those funds. Utah courts have held that
“where one carelessly or negligently makes a false representation, expecting the
other party to rely and act thereon, and the other party reasonably does so and
suffers a loss in that transaction, the representor can be held liable” for negligent
misrepresentation. Smith v. Frandsen, 94 P.3d 919, 922-23 & 923 n. 1 (Utah
2004) (quotation, alterations omitted). The district court entered judgment for the
Bank on this claim as well. It was not error to do so, for the same reasons
discussed above.
c. Conclusion
The district court did not err in entering judgment for the Bank on
49
Plaintiffs’ claims based upon the Bank’s transferring $400,000 to a bank in Utah.
In light of this conclusion, we need not address Plaintiffs’ assertions on appeal
arguing that this court should either enter judgment in their favor or remand this
case to a new judge.
B. APPEAL NO . 05-4220
In appeal No. 05-4220, the Bank challenges the district court’s decision
dismissing the Bank’s contingent counterclaim. W e review this legal
determination de novo. Cf. Ashley Creek Phosphate Co. v. Chevron USA, Inc.,
315 F.3d 1245, 1267 (10th Cir. 2003) (reviewing de novo district court’s
determination as to whether counterclaim should be dismissed under
Fed. R. Civ. P. 12(b)(6) for failing to state a claim on which relief can be
granted).
The Bank’s counterclaim, asserted against both Orient M ineral and
W il-Bao, was based upon Orient M ineral’s resolution, dated M ay 16, 1996, which
provided, in pertinent part: “BE IT FU RTHER RESO LVED that the Board of
Directors and Orient M ineral Co. shall hold the Bank of China harmless from all
claims or liabilities of any kind whatsoever, provided the directions of Preston
Jones are followed by said Bank of China.” 30 The Bank alleged that it followed
Jones’ directions, as conveyed by Yue, when the Bank transferred the funds from
30
Although the Bank also originally named as counterclaim-defendants the
individual members of both Plaintiffs’ boards of directors, the district court
dismissed those individuals without prejudice.
50
Orient M ineral’s temporary account into the W il-Bao U.S. dollar account.
Despite its following Jones’ directions, Plaintiffs pursued this litigation,
“subjecting the Bank to potential liability, costs of defense, (including litigation
costs and attorneys’ fees), and other injury.” As relief, the Bank requested that
Plaintiffs
be held liable to the Bank for indemnification of the Bank and to hold
the Bank harmless from all claims and liabilities of any kind whatsoever
resulting from the Bank’s actions in reliance upon the actual or apparent
direction of Preston Jones to transfer funds to W il-Bao M ineral
Company Ltd. as represented by the transfer slip [that Jones signed],
including but not lim ited to any liability in this action, the costs and
expenses of this action (including the Bank’s litigation costs,
disbursements, and attorneys’ fees).
The Bank made its counterclaim expressly contingent upon the district
court’s final determination adverse to the Bank on the Bank’s affirmative
defenses based upon the FSIA, “including lack of subject matter jurisdiction, lack
of personal jurisdiction, and improper venue.” It did so in an effort to preserve
its challenges to the district court’s jurisdiction and the propriety of venue. The
Bank further asserted that,
in the event of such a final determination adverse to the B ank as to the
B ank’s aforem entioned affirmative defenses based upon the
[FSIA], . . . the Bank will at that time seek leave of the Court to further
amend this Amended Answer in order to assert claims on behalf of the
Bank against the counterclaim-defendants for claims and causes of
action other than for indemnification, including at that time any claims
the Bank may have for breach of contract, fraud, injury to the Bank’s
reputation, and other claims for the B ank’s out-of-pocket loss,
compensatory, consequential, and punitive damages, and other relief.
51
At this time, however, the Bank asserts the following
contingent . . . counterclaim solely for the indemnification of the
Bank’s liability and costs and expenses in this action (including its
litigation costs and attorneys’ fees) and, as [previously] stated . . . ,
solely predicated on a final determination adverse to the Bank of the
Bank’s aforementioned affirmative defenses based upon the [FSIA].
After trial, the district court determined that it had subject matter
jurisdiction to consider the merits of Plaintiffs’ claims, to the extent they are
based upon the Bank’s transferring $400,000 from W il-Bao’s account to a bank in
Utah. 31 The condition on which the Bank based its counterclaim had thus
occurred. Nevertheless, after entering judgment for the Bank on Plaintiffs’ claims
stemming from the $400,000 transfer and dismissing the rest of Plaintiffs’ claims
for lack of subject matter jurisdiction, the district court also dismissed the B ank’s
counterclaim with prejudice.
In doing so, the court noted that, after it entered judgment for the Bank on
Plaintiffs’ claims, “[t]he Bank did not thereafter seek leave to amend the
contingent counterclaim to add any additional claims against any party.” That is
true. But, while the Bank, in pleading its counterclaim, had left open the
possibility that it might amend its answer to assert “claims and causes of action
31
Plaintiffs argue that the district court resolved the issue of subject matter
jurisdiction prior to the trial. But the pretrial order specifically noted that the
Bank contested the court’s subject matter jurisdiction, and that one of the legal
issues to be resolved at trial was whether the district court had “subject matter
and personal jurisdiction over the Bank of China arising out of its wire transfer of
$400,000 to the United States, viz., to Zions First National Bank for the benefit of
Saren Gaowa, on August 22, 1996.”
52
other than for indemnification,” the Bank also clearly pled its contingent
counterclaim against Plaintiffs for indemnification for attorneys’ fees.
The district court concluded that its decision awarding the Bank its costs,
pursuant to Fed. R. Civ. P. 54(d)(1), “afforded relief concurrent with that sought
by the B ank’s counterclaim.” W e disagree. In this case, the district court
awarded the Bank a total of $22,577.44 in costs. That amount included court and
witness fees, and costs for trial transcripts, depositions and copying. The court’s
award of costs did not include attorneys’ fees, which the Bank specifically
requested as relief in its counterclaim. The district court’s award of costs thus
did not award the Bank the full measure of relief it sought in its counterclaim.
It is far from clear whether Orient M ineral’s resolution of M ay 16, 1996,
agreeing to hold the Bank “harmless from all claims or liabilities of any kind,”
includes the Bank’s expenditure for its own attorneys’ fees. However, the district
court never reached the merits of the matter. Instead, the district court
erroneously rejected the claim, believing that its award to the Bank of its costs
gave the Bank all the relief it was seeking in the counterclaim. W e do not
intimate anything at this time about the merits of the Bank’s claim for attorneys’
fees, but that matter should be considered in the first instance by the district
court.
W e, therefore, remand that claim to the district court for consideration of
the Bank’s counterclaim for attorneys’ fees. Although in their appeal
53
No. 05-4037, Plaintiffs request that we vacate the district court’s judgment
entered in the Bank’s favor and remand to a new judge, they do not make that
same request in this appeal, No. 05-4220.
IV . C ON CLU SIO N
For the foregoing reasons, we AFFIRM the district court’s determination
that it had subject matter jurisdiction to consider Plaintiffs’ claims to the extent
they were based upon the Bank’s transferring $400,000 to a bank in Utah, and
that the court lacked jurisdiction to consider Plaintiffs’ other claims asserted
against the Bank. W e also A FFIRM the district court’s judgment in the B ank’s
favor on the merits of the claims involving that $400,000 transfer to Utah. But
we REVERSE the district court’s dismissal of the Bank’s counterclaim and
REM AND that claim to the district court for further proceedings consistent with
this opinion.
54
Orient Mineral Co. v. Bank of China
Court: Court of Appeals for the Tenth Circuit
Date filed: 2007-10-24
Citations: 506 F.3d 980
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